KEY POINTS:
Finance Minister Michael Cullen says he is keeping a close eye on inflation and economic conditions, but there will be a tax cuts programme in the budget.
The Government's headline operating surplus came in $1.7 billion lower than forecast for the six months to December 2007.
Dr Cullen last week predicted the hit, which he said was the result of turmoil on the world equity and financial markets.
Treasury yesterday said the operating surplus had come in at $815 million, $1.696b lower than forecast.
It said this was primarily driven by investment losses recorded by the New Zealand Super Fund and other Crown entities, as well as an increase in ACC's unfunded liability.
Dr Cullen said the current economic environment would have no impact on his decision to offer tax cuts in the May budget.
"The operating surplus has nothing to do with what the Government can offer in tax cuts," Dr Cullen said.
This is because the headline operating surplus drop was due to revaluations and has no real impact on money available for spending or forgoing in tax cuts.
Dr Cullen said he was waiting for more information on tax revenue and spending forecasts before making decisions on what could be offered and when.
One of the key issues was the path that inflation took in the coming year.
"There is no point in the Government proudly promising a tax cut before the election and the Governor of Reserve Bank announcing an interest rate rise before the next election," Dr Cullen said.
Asked if that meant there might not be tax cuts if inflation was running to high, Dr Cullen replied "there will be a tax cuts programme in the budget".
Dr Cullen said he had received no reports that inflation pressure was easing and he was of the view that the current drought was the biggest threat to New Zealand's economy in the short-term.
- NZPA
